Even if you aren’t remotely interested in the financial world, you can’t avoid the escaping wind of cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin, among several others. While cryptocurrencies have been all the rage these past few years, it is, in fact, the blockchain technology that is allowing them to thrive. Invented by a person — or a group of persons — identified as Satoshi Nakamoto in 2008, blockchain was largely responsible for the success of Bitcoin, arguably the most popular cryptocurrency today. Blockchain is a decentralized ledger of all transactions that are made across a peer-to-peer network.
Blockchain eradicates the requirement for a central authority to oversee the transaction. This, subsequently, grants autonomy to users over their assets and transactions.
What is blockchain?
To understand blockchain better, one can compare it with a database. A database is only a collection of information relevant to a larger task at hand. For example, a database of hospitals would contain information on patient-specific, staff, medicine, among others things. Now, a blockchain is similar to a database as it holds large amounts of information under categories. These groups are known as blocks, and these blocks are connected to more blocks creating a chain of data. Hence the name “blockchain”.
Be that as it may, in contrast to different databases, there is no one central authority running the blockchain. All things considered, when it was made to move cryptocurrencies forms of money in 2008, it was designed to be democratic in nature, as it is run by people who use it.
How does it work?
At its core, blockchain is a digital record of transactions. And every one of the transactions that are made of this ledger is copied and reflected across every computer system on the blockchain. This means that each time a new transaction occurs anywhere on the blockchain, a record of that transaction is reflected on all the ledgers on the network. This is known as Distributed Ledger Technology (DLT).
One cycle on a blockchain would look like this:
A cryptocurrency user initiates a transaction.
The related transaction information is then sent across the peer-to-peer network of computers that can be located in any part of the world.
The legitimacy of the transaction is checked using algorithms.
After confirming the validity, the transaction data is added to a block of the previous transaction.
The block is chained to other blocks, marking the end of the transaction.
What are its advantages?
The technology gives transparency as all users on the network have access to all records. Additionally, it also gives the advantages of decentralization and there is nobody administrator who has access to all information.
As well as being unknown, it also provides security. For example, if a hacker wants to hack a system, it would require them to corrupt each block in the chain, across the network. A mere-cross checking of data would help isolate the corrupt party, hence making it a secure technology suited to the needs of cryptocurrencies.